We should not pay capital gains tax as a married couple for selling personal land for $87000

[stanfieldst]

we are senior citizens as well

[rjs · Accepted solution]

There is no separate "capital gains tax." When you sell something at a profit, you have to pay income tax on the profit. "Gain" is another word for profit.

You said you sold land for $87,000, but you did not say how you acquired the land, or how much you paid for it if you bought it. So I don't know if you had a profit or a loss. If you made a profit you have to pay income tax on the profit or gain. Your age makes no difference. You only pay tax on the profit from the sale, not the full amount that you sold the land for. If you bought the land, your profit is basically the selling price minus what you originally paid for it.

If you sell your main home you can avoid paying tax on part or all of the profit if you meet certain requirements. But if you sold land that you owned for personal use, but it was not your main home, you have to pay income tax on the profit from the sale.

If you owned the land for more than a year before you sold it, your profit is a long-term capital gain. If your total income, including the long-term capital gain, is low enough, the tax rate on part or all of the long-term gain might be 0%, which means that you do not pay any tax on the part of the gain that is taxed at the 0% rate.

If you inherited the land, the gain is treated as long-term no matter how long you actually owned it. Your profit or gain in most cases is the selling price minus the fair market value on the date of death of the person that you inherited it from.

[rjs]

Taking another look at this, why do you think that you should not pay tax on the gain from selling the land? Are you thinking that you should not pay tax on the gain because the $87,000 selling price is below the $94,050 top of the 0% bracket for long-term capital gain (for 2024, married filing jointly)? That bracket boundary applies to your total taxable income -- all of your income, not just the capital gain. But it applies to taxable income, not total income or Adjusted Gross Income (AGI). Taxable income is Form 1040 line 15.

To determine the tax bracket for long-term capital gain, the long-term capital gain is "stacked" on top of your taxable ordinary income. The gain is not necessarily all taxed at the same rate. For example, if you have $90,000 of ordinary taxable income, that "uses up" $90,000 of the 0% bracket for long-term capital gain. So $4,050 of your long-term capital gain would be taxed at 0%. Any additional long-term capital gain would be taxed at 15%.

If your MAGI is over $250,000 (for married filing jointly), the capital gain may also be subject to Net Investment Income Tax. MAGI for the Net Investment Income Tax is AGI plus excluded foreign income. (If you did not claim the foreign earned income exclusion, MAGI is equal to AGI.) The Net Investment Income Tax is 3.8% of the lesser of net investment income or the amount by which MAGI exceeds $250,000.